The new administration of President Donald Trump will likely take actions in the next 24 months that will affect the transition to outcome-based payments, the Medicaid program, the states’ ability to administer it, and payment rates to the overall healthcare sector.
Although as a presidential candidate, Donald Trump promised to make substantial changes to health care, it was not immediately clear what those changes would be in the days after he was elected president. The nominations of Congressman Tom Price (R-Ga.) to the position of secretary of the U.S. Department of Health and Human Services (HHS) and Seema Verma as administrator of the Centers for Medicare & Medicaid Services (CMS) have created a picture of how the transition to value will be affected, the Medicaid program might change, and base rates to industry participants will be affected by other policy priorities.
The transition to value, particularly episodic payments will continue, however at a different pace and with an altered focus. Medicaid, will likely be changed. If not on a national level as a result of legislation, at the state level through Section 1115 waivers. Finally, if policy priorities outside of healthcare are accomplished, they will likely trigger cuts to Medicare and Medicaid payments to reduce the deficit. Even though many questions remain—particularly as they relate to the coverage expansion brought about by the Affordable Care Act (ACA)—the clarity emerging in these key areas should allow health plans, health systems, and physicians to begin adapting their strategies for the new policy environment.
The Future of CMMI
Many have questioned the outlook for bundles and other innovative payment models developed by the Center for Medicare & Medicaid Innovation (CMMI), given that eliminating CMMI is listed as a goal in Republican health policy documents. a With the Trump administration’s appointees running HHS and CMS, however, it is likely Republicans will think twice before shuttering CMMI. The latitude to experiment provided by CMMI—or some function within CMS—will be useful in testing and implementing conservative health policy ideas.
Specific to episodic payments, even if CMMI is eliminated, Section 3023 of the ACA—which was not targeted for repeal in the reconciliation bill passed by Republicans in early 2016 due to a lack of direct budgetary impact—mandates a national pilot program on payment bundling. CMS therefore is legally bound to administer a bundled payment program even if CMMI is disbanded. Although the administration could let a bundled payment program wither from administrative neglect, that’s not likely. In general, voluntary bundles are viewed favorably on both sides of the aisle. For example, Rep. Diane Black (R-Tenn.) included a voluntary bundled payment program in the Hospital Improvement for Payment Act at the end of 2014. b
The Future of Mandatory Bundles
Although CMMI is likely to remain intact and continue developing episodic payment models, its focus relative to bundles will change slightly. Price is an outspoken critic of the mandatory payment models implemented by CMMI. c Therefore, additional new models are not likely to be mandatory. The episodes for coronary artery bypass graft (CABG), acute myocardial infarction (AMI), and surgical hip and femur fracture treatment (SHFFT) included in the Episode Payment Model final rule will likely be the last mandatory models implemented without legislation. However, new (or at least improved) episodes will be rolled out with the next iteration of the Bundled Payment for Care Improvement program. Assuming the timeline discussed in the final rule implementing the Medicare Access and CHIP Reauthorization Act (MACRA) holds, this rollout is anticipated later this year.
Additional new voluntary episodic payment models developed are likely to focus on physicians or, in the very least, to provide more flexible options for physicians to participate and share savings and losses with alternative payment model entities. This view is based on Price’s background as an orthopedic surgeon and the need to develop more models that provide an avenue for physicians—particularly specialists—to qualify for the advanced APM incentive payment under MACRA.
An Imperative to Forge Ahead
The end, at least for now, of mandatory participation in episodic payment models is likely to be welcomed by many hospitals. However, it would be a mistake for hospitals to forgo efforts to prepare for the spread of bundled payments.
First, episodic payment models are likely to be the vehicle that allows many specialists—on whom hospitals rely for patient volume—to qualify for the APM bonus payment. Therefore, the organization that can provide the best platform from which to successfully manage an episode will be rewarded with referrals from these physicians.
Second, employers, commercial payers, and state governments will continue to view bundled payments as a vehicle to reduce variation in both the cost and quality of outcomes for high-volume procedures. d Therefore, hospitals that are unable to meet to purchaser demands risk losing volume. In response to these demands from both physicians and purchasers, hospitals should continue to focus on developing the analytic capabilities, care coordination staffing and tools, physician relationships, and post-acute care networks necessary to succeed in an episode.
Through its Value Project, HFMA has identified practices that leading organizations have used to reduce both the internal cost to produce care and the overall cost of care that can help organizations navigate an environment of continuous rate pressure. HFMA also has published a bundled payment compendium offering case studies of strategies organizations have used to overcome payment challenges.
Medicaid Program Changes
Republicans have long advocated for changes to the financial relationship between the federal and state governments that would both limit federal outlays and give states flexibility in providing benefit packages to enrollees in the Medicaid program. Although changes limiting federal outlays will require passing legislation, changes to the benefit package can be accomplished through the regulatory process—at least at the state level.
Changing the state/federal relationship. In his healthcare policy proposal, A Better Way: Our Vision for a Confident America, Speaker of the House Paul Ryan (R-Wisc.) identifies block grants and per capita allotments as means for changing the relationship between states and the federal government. e The exhibit below compares the two approaches with the current Medicaid program. Although the approaches differ materially, they would provide states with a fixed support payment for their Medicaid programs in exchange for greater flexibility in coverage requirements and more administrative leeway to manage the program based on state-specific needs.
Comparison of Traditional Medicaid With the per Capita Allotment and Block Grant Financing Mechanisms Proposed Under “A Better Way”
Under A Better Way, states would receive a per capita allotment by default but could opt to receive a block grant in exchange for greater programmatic flexibility. Although the precise legislative details of any changes to Medicaid would alter the spending impact, it was estimated that a similar block grant proposal included in the House’s FY15 Concurrent Budget Resolution would save $732 billion over 10 years. f By comparison, consider that when the ACA became law, its Medicare market basket update reductions to hospitals and post-acute care providers were projected to yield $196 billion in savings to the program. g
The savings to the U.S. Treasury under the Ryan proposal would stem from the failure of federal contributions to states to keep pace with healthcare cost inflation. The lower funding levels from the federal government and less restrictive coverage and administrative mandates would likely prompt states to pursue a range of strategies that would fall into two general categories: restructuring payments to providers and aggressively managing the covered population. The aim in both cases would be to reduce cost growth and prevent the Medicaid program from crowding out other state priorities, such as education, public safety, and transportation. The exhibit below provides a list of some but not all strategies states might use.
Examples of Strategies States Might Use to Manage Costs
Changing the benefit package. Even if legislation altering federal funding for the Medicaid program isn’t enacted, the benefit design is likely to change in many states. It’s widely anticipated that CMS under Verma will look more favorably on state waiver applications that incorporate “consumer-driven” designs and features promoting “personal health responsibility.” To understand how these features differ from traditional Medicaid and other waivers, it’s instructive to examine the Health Indiana Plan (HIP) 2.0, which Verma helped design and implement. h
HIP 2.0 provides services through capitated managed care organizations. Health savings accounts (HSAs) are established for newly eligible beneficiaries between 0 and 138 percent of the federal poverty level (FPL). i The accounts are used to pay premiums (for those eligible) and cost sharing. For able-bodied adults in the expansion population (101-138 percent of FPL), premiums are a condition of enrollment and are limited to 2 percent of income. For all populations, Indiana makes an initial $1,300 contribution to each beneficiary’s HSA upon enrollment and funds the difference between the beneficiary’s monthly premiums and the full $2,500 account value. Balances can be rolled over from year to year, and the state will increase the funds rolled over if beneficiaries receive certain preventive care services.
Beneficiaries who pay premiums will be eligible for HIP Plus, an expanded benefit package that includes dental and vision services and waives copayments for all services except nonemergency use of the emergency department (ED). j Able-bodied beneficiaries between 101 percent and 138 percent of the FPL who fail to pay premiums are disenrolled after a 60-day grace period and are locked out of the program for six months. The program also has phased out retroactive coverage of services provided in the 90 days prior to enrollment, relying instead on the ACA waiver allowing hospitals and other organizations to grant presumptive eligibility based on a limited data set.
Finally, for individuals who have access to employer-sponsored insurance, HIP 2.0 provides a $4,000 HSA contribution that a beneficiary can use to help purchase coverage through an employer. However, to date, this benefit has seen limited use. Based on the first-year results evaluation performed by the Lewin Group, Inc., for the Indiana Family and Social Services Administration, 124 employers are participating, having signed up 131 employees who would otherwise be eligible for Medicaid. k
Based on initial evaluations, it does not appear that requiring small HSA contributions is limiting access to care. As coauthor of an August 2016 Health Affairs Blog post, Verma pointed out that, on average, 70 percent of HIP beneficiaries make contributions (85 percent of those individuals are below the poverty line). l Moreover, in its report, The Lewin Group notes that of those who do not make HSA contributions, 80 percent cite a reason other than affordability.
Based on utilization metrics, members who contribute to their HSAs also appear to be more conscientious in how they access care than are those who do not contribute. In their blog post, Verma and coauthor Brian Neale note that even though HIP Plus members are sicker, they use about 93 percent more primary care and 40 percent more preventive care, and based on visits per 1,000 member years, they visit the ED 25 percent less frequently that do other HIP beneficiaries. They also have a lower rate of missed appointments (18 percent versus 23 percent).
In its report, The Lewin Group describes results of a survey that found approximately 84 percent of Indiana’s providers are attempting to collect copayments from HIP beneficiaries. Most respondents (about 80 percent) said they attempt to do so at the point of service, while the remainder said they billed their patients after the fact. Providers’ success in collecting copayments varied, as shown in the exhibit below.
Percentage of Health Indiana Plan (HIP) Members Making Their Copayments, as Reported by Surveyed Providers
In states where this type of waiver is approved, hospitals and physician practices will face the challenge of collecting an increased volume of small balances related to Medicaid copayments. To be able to collect these amounts cost efficiently, a provider will require both a strong point-of-service collections program and a strong accounts resolution process.
Medicare and Medicaid Payment Reductions
Candidate Trump promised not to “touch” Medicare and other entitlement programs such as Medicaid. m That promise is likely to run headlong into the fiscal realities facing the United States as President Trump attempts to deliver on key planks of his platform, including tax reform and increased infrastructure spending. n Using the static scoring methodology traditionally favored by the Congressional Budget Office (CBO), a preliminary analysis of candidate Trump’s policies by the nonpartisan Committee for a Responsible Federal Budget found that the combined impact of his policies would add $5.3 trillion to the national debt. o And this projection does not include the impact of the recently released details of President Trump’s proposed $1 trillion infrastructure package. p
Even before factoring in the contemplated additional spending and tax cuts, CBO projected earlier this year that the U.S debt-to-GDP ratio would exceed its previous post-World War II high of 106 percent sometime around 2030. q
Although it’s likely the tax cuts contemplated would trigger growth leading to increased tax revenues, it’s unclear whether the increased collections would offset the revenue lost through lower rates. Given this uncertainty, if a tax reform and or infrastructure package were passed, fiscal conservatives would likely require offsetting savings to soften the deficit impact.
Health plans, health systems, physicians, and post-acute providers therefore should anticipate a raft of accompanying payment cuts. The Medicaid payment reductions would likely come through either a per-capita cap or block grant program (discussed above). Although it is possible that Republicans will attempt to restructure the Medicare program to achieve savings, in the near-term, savings would likely be achieved by targeted cuts. As illustrated in the exhibit below (and discussed in prior articles), the Bowles-Simpson plan provides a road map of potential cuts that Congress and the Administration could “plug and play.” r
Bowles-Simpson Deficit Plan Projected Healthcare Savings: $585 Billion
Stakeholders who would be affected by these targeted cuts should continue taking steps to reduce their internal costs of delivering care and strengthen their balance sheets.
The Next Step: Adapting Strategy
Many questions remain regarding what lies ahead for the nation’s healthcare system—particularly regarding the fate of the coverage expansion brought about by the ACA. But as clarity begins to emerge regarding new policies in the area of episodic payment, Medicaid, and overall payment levels under government programs, health plans, health systems, and physicians will begin to be able to adapt their strategies accordingly.
Chad Mulvany, FHFMA, is technical director, reimbursement and regulatory issues, in HFMA’s Washington, D.C., office and a member of HFMA’s Virginia-Washington, D.C., Chapter.
a. A Better Way: Our Vision for a Confident America , policy paper, June 22, 2016;
b. See House Committee on Ways and Means, “Hospital Improvements for Payment (HIP) Act of 2014: Section-by-Section,” Dec. 8, 2014.
c. See U.S. Representative Tom Price, MD, “Price, Boustany, Paulsen Lead Letter to Stop CMMI’s Overreach,” press release, Sept. 29, 2016.
d. See Whitman, E., “UnitedHealthcare Expands Bundled Payment for Orthopedics,” Modern Healthcare, Dec. 1, 2016.
f. Dilger, R.J., and Boyd, E., Block Grants: Perspectives and Controversies , Congressional Research Service, July 15, 2014.
g. See letter from Douglas W. Elmendorf, CBO director, to then Speaker of the House Nancy Pelosi, March 10, 2010.
h. See Kaiser Family Foundation “Medicaid Expansion in Indiana,” Feb. 3, 2015.
j. As part of the demonstration, HIP 2.0 has tested graduated copays for non-emergency ED. The first instance of such use requires an $8.00 copayment. Subsequent nonemergency visits cost $25.00 over the next 12 months. To support for this policy, managed care organizations must provide a 24-hour nurse hotline that can help patients determine the appropriate setting. Organizations must also contract with a range of urgent care centers and retail clinics.
k. The Lewin Group, Inc., Indiana Healthy Indiana Plan 2.0: Interim Evaluation Report , prepared for Indiana Family and Social Services Administration, July 6, 2016.
l. Verma, S., and Neale, B., “Healthy Indiana 2.0 Is Challenging Medicaid Norms,” Health Affairs Blog, Aug. 29, 2016.
m. “Why Donald Trump Won’t Touch Your Entitlements,” The Daily Signal, May 21, 2015.
n. See Langley, M., and McKinnon, J.D., “Trump Plan Cuts Taxes for Millions,”The Wall Street Journal, Sept. 29, 2015; and
o. Committee for a Responsible Federal Budget, Promises and Price Tags: An Update, Sept. 22, 2016.
p. Marsh, R., “Trump’s Trillion-Dollar Infrastructure Plan Faces Congressional Scrutiny,” CNN Politics, Nov. 17, 2016.
q. CBO, The 2016 Long-Term Budget Outlook , July 12, 2016.